Sunday, December 14, 2014

Brazil: The Lord Took it Away.


"The Lord gave, and the Lord hath taken away; blessed be the name of the Lord". Job 1:21

A few years ago, the BRICS were all the rage. Brazil, in particular, seemed quite successful:

Source: Google

Riding on the back of the resources boom, the Brazilian balance of trade was positive during the first decade of this century, reaching a record surplus in 2006 of nearly USD 6 billion (source). Together with a moderately expansive fiscal policy (2.4% of GDP on average, with a 4.3% peak in 2003, and two highs in 2005 and 2009, both around 3.5-3.6%, source), the Da Silva and Rousseff administrations (from the pseudo-left Workers' Party) appeared to have found the magic formula to keep business people and the rest of us happy. The Lord gave it.

According to James Petras (the Bartle Professor, Emeritus, of Sociology at Binghamton University), things may have changed for the worse since Rousseff's appointment of Joaquim Levy as Finance Minister (h/t MNE). Levy, a “Chicago Boy”, is linked to Bradesco, a Brazilian financial giant.

Petras qualifies Levy's policies as “shock therapy” and believes that, “contrary to the expectations of President Rousseff, cuts in credit, salaries and public investment will depress the economy – and send it from stagnation into recession”. The Lord took it away.

Frankly, I haven't followed the situation in Brazil, but I'm happy to accept Petras' opinion. He also believes that:

  • First and foremost, inequalities will increase because whatever income gains ensue will be concentrated at the top. Government deregulation and fiscal and exchange rate policies will deepen the imbalances in the economy, favoring creditors over debtors, foreign finance over local manufacturers, owners of capital over wage workers, the private sector over the public.
  • Levy’s shock therapy will heighten class tension and inevitably result in the break-down of the social pact between the so-called Workers Party regime and the trade unions, the landless rural workers and the urban social movements.

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However, I do find Petras' analysis wanting in two matters. First of all: there is no point in singling Levy out as responsible for this: “It's not personal, Sonny. It's strictly business”, in the immortal words of Michael Corleone. If Bradesco has too much power, the solution is pretty simple: nationalise it.

Another thing that escaped Petras' attention is that, whenever these pseudo-left parties have to choose between the people's interests and business interests, they will inevitably, invariably choose the latter. It's in their nature, as the scorpion said to the dying frog in the Frog and Scorpion fable.

To predicate fiscal stimulus on technical grounds, as MMTers and Keynesians are wont to do in these circumstances, is not the solution: political will, not brains, is what is lacking.

Again, it doesn't take a genius to figure the solution: real socialism, not pseudo-left, not bullshit social democracy, not third way.

The good news? We don't need to wait for the Lord.

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